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Sales Fees per AUM
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Sales Fees per AUM

  #1 (permalink)
Elite Member
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Sales Fees per AUM

Hello,

I would like to better understand how sales people are paid in Hedge Funds and/or private banking.

For example, how much a salesman can get for a referral to a Hedge Fund when the client is investing 1M USD? For simplicity, we can say that the HF charge 2/20

or

For example how much a wealth manager (broker) from a large US bank can make if he/she signs a new client with a 1M USD business.

Do they work with a once time fee or variable for the existence of the client.

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  #2 (permalink)
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  #3 (permalink)
Market Wizard
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Minds View Post
Hello,

I would like to better understand how sales people are paid in Hedge Funds and/or private banking.

For example, how much a salesman can get for a referral to a Hedge Fund when the client is investing 1M USD? For simplicity, we can say that the HF charge 2/20

or

For example how much a wealth manager (broker) from a large US bank can make if he/she signs a new client with a 1M USD business.

Do they work with a once time fee or variable for the existence of the client.

the 2/20 arrangement is reserved for the money manager. How they choose to compensate sales people is up to them whether one time or on an ongoing basis. You would need to find out if you need to be licensed in order to be compensated.

Thanks,
Matt Z
Optimus Futures

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.

PM with any questions about optimusfutures (800) 771-6748 (561) 367 8686. THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES TRADING.
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  #4 (permalink)
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Minds's Avatar
 
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Thanks Matt,

I would like to know how much HFs pays third-party salesman.

Do you have any idea of how much they get from the 2/20? Do they get part of the fix and variable or only get compensated from management fee?


mattz View Post
the 2/20 arrangement is reserved for the money manager. How they choose to compensate sales people is up to them whether one time or on an ongoing basis. You would need to find out if you need to be licensed in order to be compensated.

Thanks,
Matt Z
Optimus Futures

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.


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  #5 (permalink)
Market Wizard
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Minds View Post
Thanks Matt,

I would like to know how much HFs pays third-party salesman.

Do you have any idea of how much they get from the 2/20? Do they get part of the fix and variable or only get compensated from management fee?

As I have mentioned, HFs can vary in terms of the compensation they provide. If you ask me specifically, "how much", I do not know because your question is general and does not have one universal answer. Call the HF you want to represent and ask.

I can tell you, in general, CTAs for example could pay licensed brokers up to 20% of the 2/20 in order to keep the commissions low and create an environment that is fair to all, customer, broker and CTA. I would assume that in the HF, they may go for the same arrangement. Just using my experience, I could tell you that highly established HFs would most likely pay less as they have substantial AUM. Those with less AUM, may potentially offer more.

Thank you,
Matt Z
Optimus Futures

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.

PM with any questions about optimusfutures (800) 771-6748 (561) 367 8686. THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES TRADING.
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  #6 (permalink)
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In my experience, I'd upper bound (for minimal amount of AUM raised) it at:

Cap intro: <5% of the AUM.

Legal fees at large firms: <1.5%

Admin at big 5 (monthly/daily): <0.25%

Accountants at big 6 (tax): <0.05%

Auditors at big 6: <0.3%

As you can see it's expensive and a 2% management fee is not enough to cover all of these. These go lower and become more efficient as you scale up. You can also go lower with more boutique operations... often boutique brokerage firms will offer to raise your capital at nearly zero/free because they make the business through your trading.

Large funds probably pay about 8-10 bps for admin only. That's why the common advice is to aim for >$100M in AUM because at that point you start to breakeven on these administrative costs.

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  #7 (permalink)
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If your goal is to make money through introducing capital, it's a very efficient business and hard to beat these brokers.

Most fund capital is concentrated in the U.S.

Only about 3% of the U.S. can invest in 3(c)1 funds, yet this portion represents a very small % of the total AUM.

For you to make money from this, you need to know the investors who can focus on serious CPOs or hedge funds. (For example, you'll need to find someone who can invest in chunks of $1M so that at best you're aiming for $50k with 1 closed lead which makes it comparable to a upper middle-class real estate brokerage job.) These are often broadly called 'institutional investors' but we're generally referring to those who meet QP or QEP definitions. They compose a majority chunk of the AUM but the actual people you can talk to here are less by a factor of about 100. So there's not many investors who you can make a sales commission from.

Then realize that the large GSAM/JPMAMs know nearly all of the active investors in this group and most of the exciting, upcoming fund managers that these investors are matched with. (My firm was relatively unknown and wasn't even in the fund space but it took them 1 year to discover us.)

To differentiate yourself from GSAM/JPMAM you almost definitely need an amazing network and conversion rate (convince a tech entrepreneur to invest in his first hedge fund) and should offer some other kinds of brokerage services. When I was in high school, I could probably count the number of QPs I knew by 2nd degree with 1 hand.


Last edited by artemiso; July 12th, 2017 at 03:08 AM.
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